Singapore Drives AFTA

When the European Union began its rapid expansion with new members and a unified currency, the economic conservatives were harsh, warning about the dangers of incorporating countries with a more flamboyant attitude to fiscal management.

Now, more than a decade later, the EU has been saddled with Greece, Ireland, Portugal and potential bailouts that will ensure such countries will carry reputations of being the economic basket cases of Europe for a long time to come. The numbers are enormous. Additionally, economic policies in Spain, Italy and even Britain have hardly instilled confidence.

Their follies are worth noting from a Southeast Asian perspective, where political niceties mean nations will do their level best to avoid the nastier side of internal affairs among their neighbours—and at a time of economic integration.

The ASEAN Free Trade Area (AFTA) was almost fully implemented just over a year ago, and as a trading bloc AFTA has chartered a course pioneered by the Germans and French, the type of people that technocrats in Singapore see as their peers.

AFTA's initial target was to follow in Europe’s footsteps and totally eliminate import duties on most products among the original six members of the Association of South East Asian Nations (ASEAN)—Malaysia, Indonesia, Thailand, the Philippines, Brunei and Singapore.

Newer members Cambodia, Laos, Myanmar and Vietnam will sign on in 2015 when the ASEAN Economic Community (AEC)—bearing a closer resemblance to the EU—formally arrives.

An integrated AEC market is still a long way from mimicking the EU, but it will hold 600 million people with a combined GDP of $1.5 trillion. Goods now flow freely across the region, and Singapore enjoys a position of economic pre-eminence within the bloc.

Government ministers have argued investors would be attracted to the ASEAN region and consumers would benefit as more efficient producers result in competitive lower prices while providing a significant boost to intra-ASEAN trade where Singapore stands ahead of its neighbours.

Importantly, AFTA is forcing producers to meet international standards. And in Singapore, advances in information technology and lower transport costs have enabled companies to break up and strengthen their supply chains at cheaper rates. Singapore's banks are seeing a lift from ASEAN companies establishing a regional base in the island-state.

Singapore is also challenging Thailand’s dominance in more mundane areas, like the plastic pellet market, while also encompassing more international issues such as education, medical research and climate change.

Cross border trade had previously accounted for a mere 20 percent of all ASEAN trade, but by establishing AFTA, this figure is increasing substantially, limiting the impact of sharp currency fluctuations—particularly against the US dollar and Chinese yuan.

By all accounts, AFTA has steered the region toward a brighter economic future. But, like Europe, Southeast Asia is hardly free of economic dingbats. If episodes like the Irish and Greek tragedies (among others) that are being played out in Brussels are to be avoided here, then countries like Singapore might need to breach protocol and take a more active interest in the fiscal affairs of their neighbours.